The Good Faith Estimate or GFE is a form, which lenders are required to complete and provide to borrowers applying for a mortgage. It is intended to make it easier for borrowers to compare mortgage offers from different lenders and it is required under Real Estate Settlement Procedures Act (RESPA) rules. There are actually two forms to look at. The first is the Good Faith Estimate itself, and must be provided when you apply for the loan. The second is the Settlement Statement, which breaks down and details all final costs, and is provided before the actual closing. The two forms are designed to allow the borrowers to compare the estimated and final costs to ensure they are either unchanged or that the changes are within the limits allowed by law.
On the Good Faith Estimate, the main thing a borrower needs to be concerned with is the section titles “origination charges.” These are all the fees that the lender is charging you for making the loan. All a borrower has to do is compare origination charges to see exactly what different lenders would charge for issuing similar loans. The origination charges section also details any points that are being paid or credited to raise or lower the mortgage interest rate. This enables borrowers to more accurately compare the true cost of offers from different lenders.
The second main item borrowers need to be concerned about is “settlement charges.” This details all third party costs, such as title insurance and transfer taxes. An optional table that can be filled out by the lender shows how you can raise or lower your interest rate by opting for higher or lower settlement charges, and vise versa.
The Good Faith Estimate also details your initial loan balance, interest rate and monthly payments, and whether any of these can rise during the course of the loan and if so, by how much. It also requires disclosure of any prepayment penalties and whether there is a balloon payment on the loan. Finally, the form spells out which charges on the GFE cannot increase at the time of settlement (as detailed on the Settlement Statement). There’s also a “shopping chart” that allows borrowers to compare terms on up to four different mortgages.